Osborne warns on Scotland oil fund

Scotland would have to make large cuts to public services if it wanted to create an oil fund after independence, according to Chancellor George Osborne.

The Conservative MP, who is visiting Aberdeen today to address the oil and gas industry, said it would take £8 billion out of the budget to divert revenue into a fund.

Scotland can "go it alone", he said, but as part of the UK it has a broader base to "absorb" fluctuations in the revenue.

He dismissed the idea that Scotland could set up an oil fund, like in Norway, without making severe public spending cuts.

"By our calculation you'd have to make some very substantial cuts - £8 billion of cuts - to Scottish public spending," he told BBC Radio Scotland's Good Morning Scotland programme.

"Even if you were getting all the money from Scottish oil, you'd have to make big, big cuts - 5% of the GDP - to your education budget, to your health budget, before you could even start putting money into an oil fund."

The Scottish Government is "all over the place" with proposals for such a fund, he claimed.

"The industry has a bright future if we invest in it, if we work with the industry to make sure we've got skilled kids coming out of our schools, the right graduates and people from our technical colleges, if we've got the right tax regime," he said.

Defending criticism of the UK Government's tax increase on the industry in 2011, he said tax relief has helped offshore exploration.

"The oil industry representatives that I've been talking to in Aberdeen, they're very encouraged about the future and about the tax environment," he said.

"They made the point that the UK Government is working closely with them to try and maximise the amount of oil and gas which is to the benefit of all the people in Scotland and all the people in the UK."

Mr Osborne will make a speech at the Offshore Europe conference on the day he launches the Treasury's analysis paper on Scotland's macroeconomic and fiscal performance.

His visit to the north east comes 10 days after four people were killed when a helicopter carrying workers from an offshore vessel crashed into the sea as it approached Shetland.

The Chancellor is also expected to pay tribute to ''brave'' offshore professionals who carry out their jobs in ''an inherently dangerous environment''.

Meanwhile, the Treasury analysis will say that there would be two "fundamental fiscal consequences" if Scotland became an independent country.

Firstly, Scotland would need to rely on a narrower and more volatile tax base to fund spending on public services, according to the Treasury.

Secondly, independence would result in the break-up of the UK tax system. A separate tax system would need to be implemented in Scotland with potential implications for business, individuals and both Governments, it will say.

Mr Osborne will also unveil the final decommissioning deed - a contract which gives oil and gas companies certainty over the level of tax relief that they will receive for decommissioning.

Scottish Finance Secretary John Swinney said: "North Sea oil is a bonus, not the basis for Scotland's economy and, with up to 24 billion barrels of oil left worth an estimated £1.5 trillion, it will continue to contribute to the wealth of Scotland for a long time to come.

"Leaving decisions at Westminster has cost Scotland 30 years of an oil fund and it was only the vociferous arguments of the industry and the Scottish Government that prevented investment being set back by years.

"The Scottish Government has made clear commitments to the industry that demonstrate the benefits of decisions being made in Scotland and that means a Yes vote next year will secure a strong future for Scotland's oil industry."